Professional Liability Guide

CHAPTER 7 – CAUSAL PHRASES

Returning to the concept of proximate cause, in Switzerland Insurance Australia Ltd v McCann, the New South Wales Court of Appeal held that:

‘While the concept of proximate cause is established in insurance law, at least in causation of loss by an insured peril, the requirement of a proximate cause depends on the words used in the policy and the proper scope to be given to them in the operation of the policy.’ 445 As this excerpt demonstrates, it will not always be the case that the policy permits the application of proximate cause. This is because other causal phrases may be used to link the event and the loss/damage. Before we consider these causal phrases, we should examine in greater depth how the operation of proximate cause and the phrase ‘ caused by ’ have been interpreted by the courts in the insurance context. ‘Caused by’ and the impact of ‘directly’ and ‘indirectly’ In Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited, 446 McColl JA (with whom Ipp JA and Tobias JA agreed) concluded that the proximate cause rule applies notwithstanding the use of the adverb ‘ directly ’ to modify the term ‘ caused’ in the policy. On the proper construction of the policy, the expression ‘ directly caused’ required determining the proximate cause of the damage. ‘It is consistent with this approach that the proximate cause rule is capable of applying even where the word “directly” qualifies the word “cause” in a policy. In Boiler Inspection & Insurance Co of Canada v Sherwin-Williams Co of Canada Limited (at 333) in construing a policy which responded to ‘loss on the property of the assured directly damaged by such accident … excluding … (e) loss from any indirect result of an accident’, Lord Porter said: ‘Whatever meaning the word “direct” may have in qualifying the word “result”, it does not imply that there can be no step between the cause and the consequence. It is unnecessary to multiply examples. Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] AC 350, sets forth the principle … To the like effect are Lord Wright’s words in delivering the judgment of the Board in Canada Rice Mills Ltd v Union Mariner and General Insurance Co ([1941] AC 55, 71): ‘It is now established by such authorities as Leyland Shipping Co v Norwich Union Fire Insurance Society, and many others, that causa proxima in insurance law does not necessarily mean the cause last in time, but what is “in substance” the cause, … or the cause “to be determined by common-sense principles”.’ 447 Justice McColl said:

Justice McColl opined that ‘ directly caused’ excluded indirect or remote causes, but it did not mean there could be no step in between the fire and the damage. She further concluded that:

‘in my view the natural and ordinary meaning of the expression “directly caused by” in the Policy is that it is to be equated with “proximate cause”. That construction should be preferred to a literal construction such as that which the primary judge adopted which, in my view, would defeat the object of the contract of insurance and flout commercial commonsense.’ 448

445 [1999] NSWCA 310 [78]. 446 [2005] NSWCA 66. 447 Ibid [46]. 448 Ibid [100].

85

© Carter Newell 2023